5 year treasury yield in the 3rd qtr. dropped 81 bsp from 176 bsp to 95 bsp. Duration is 4.25 years (weighted average time of cash flows for 5 year treasury). So the price increase on 5 year treasury during the qtr is 3.4% or 4.25 yrs. times 81 bsp. So it look likes banks harvested most of the gains - 2.4% realized and 1.0 unrealized. My cal estimates realized gain at $40 billion. Heck of an increase assuming 5 year treasury is representative of banks gov't investment securities. Bbt had about $22 billion of treasuries and mbs gse at 6/30/11. 3.4% price appreciation is a huge #. Hope they sold most of that portfolio.

2nd qtr. bbt nim was 4.15%. Assuming bbt experienced similar trends shown in Fed data for banking system, I think their nim increased some even though there appears to be much refinancing. Specialized lending business has a gross margin of 11% plus. Cost of funds should have continued to drop.

Looks like refi income was significant given that residential mtg for total banking system grew despite very weak new home sales and foreclosures.

Reduction in ALL for total banking system of $14 billion equals 7%. 7% reduction in bbt ALL is a big number - around $160 million. Last qtr. total banking system ALL drop by about $13 billion. Credit metrics continue to improve significantly.

I'll make no prediction about valuation allowance in 3rd qtr 2011 which has pounded bbt p&l by over $1 billion over last 2 1/2 years.

"And do you really think land lost 80% of its value? According to whom? Such losses only occur if banks foreclose and make them so. You need to review a statment made by Warren Buffett about real estate. To paraphrase, CRE is a long-lived asset and market cycles will come and go, but to say that in any given year the value of that asset is 50%, 60% or 80% less than the previous year's value is nonsense."

Bbt adc portfolio is down about $6.5 billion or 70% from its peak. Most of the adc portfolio was land. Bbt current mark on their reo inventory is 54%. The mark on land is even higher. Assuming an ltv of 60% on land when the loan was originated marked at 54% results in fair market value of 27% of the original appraisal price. Since land lost more value than any other cre asset class, 80% is reasonable. For the lower marks take on reo land disposals, remember bbt booked over a $1 billion of mark losses over last 2 1/2 years via the valuation allowance.

Obvious to me that you also need to bone up on portfolio accounting.

Smoothing of earning? Bbt has a history of smoothing earnings to prevent shareholder dilution but ALL releases going forward are justified given huge improvements in deliquencies and nonaccruals. Also, real estate prices will start to go up at some point.

AYSCEUW is correct. On pretty much all counts. LLRs are a non-cash slush fund to smooth earnings. Tell me you dont understand that Norm? And if worse is coming, they will not reverse them and earnings will be ho hum...

And do you really think land lost 80% of its value? According to whom? Such losses only occur if banks foreclose and make them so. You need to review a statment made by Warren Buffett about real estate. To paraphrase, CRE is a long-lived asset and market cycles will come and go, but to say that in any given year the value of that asset is 50%, 60% or 80% less than the previous year's value is nonsense.

We can all fish for data to support our arguments...and Norm you are really good at that, but the price of BB&T is what it is. And it is not going anywhere for some time. Now if you are smart enought to "trade" a profit, more power to you.

But also, look at your original fed numbers...100B in new lending quarter over quarter for the entire industry? that a recovery does not make. We have to put 300,000 people into real jobs every month for the next 2 years. That type of anemic credit expansion is not good news.

Ayscuew - This is not about "taking sides". It's about being objective. Is bbt a good investment? At $21/ share imo it's a great bargain. Understanding portfolio accounting is very important when evaluating bbt.

Regarding bbt historical reserves, land lost 80% of its value. This is what really hurt bbt. I can't fault Allison or KIng.

Also, I think many folks have completely ignored that US total manufacturing orders and shipments for August and YTD 2011 are up around 10% vs. last year. Not to shabby for an economy which lost 6/8 million direct and indirect jobs linked to residential/commercial construction. Don Johnson, marketing vp of GM had some encouraging words about car sales. Age of US car fleet is 10.9 years which I think is a record high.

"Believe BB&T had $3.4 billion reserved at the end of the second quarter. Are you telling me that Kelly King has no latitude in the way that he writes that reserve (or a part of it) back into profits?"

The ALL is about $2.5 billion. Charge-offs are charge-offs. The provision should be based on current credit metrics. Within the next few qtrs. it should taper down to about 60 bsp annualized.

Of course, King has some latitude. The provision is not black or white. It's various shades of gray

My view of BB&T's results over the next few quarters is much more simplistic. I believe that Kelly King will use reserves to orchestrate results. BB&T will beat the street but no big earnings number for the next few quarters. Too much cash tied up in fed funds at very low return. For years John Welch used the financial arm of General Electric to keep GE earnings growing. King can now do the same with BB&t reserves.Just my opinion and I will buy more shares before October 20th if share price stays around this level.Good numbers norm. I appreciate your input.

"My view of BB&T's results over the next few quarters is much more simplistic. I believe that Kelly King will use reserves to orchestrate results. BB&T will beat the street but no big earnings number for the next few quarters."

With all due respect ayscuew, I do not believe you understand portfolio accounting. The vast majority of bbt charge-offs in the 3rd qtr will result from loans originated in 2005 through 2008. Bbt provisioning this qtr is primarily a function of loans originated in 2009 and subsequent periods. There is a world of difference in underwriting standards between the 2 time periods referenced above. The resulting bad debt expense for these 2 time periods will be vastly different.

So obviously, provisioning for the 3rd qtr. 2011 should be substantially less than charge-offs because credit quality has improved and will continue to improve with bbt bad debt expense normalizing at 60 bsp per year.

I'm sure your opinion will be shared by many folks in the media this qtr. Certainly nothing new. Bank ceos need to do a much better job of explaining portfolio accounting to the media. Ignorance creates fear and destroys value. Ok with me though because otherwise, I would not have been able to afford my current position in bbt and other high quality banks.

When it comes to loan provisioning, the key question is do the credit metrics - nonaccrual addition and changes in delinquencies - support the loan provision. For example, last qtr. bbt provisioning equaled 118 bsp, almost twice the bank's stated normalized level even though there was a huge improvement in credit metrics. Personally, I think it was too high. This qtr. I think the credit metrics will continue to show major improvement and loan provisioning will definitely fall a lot.

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